| Generally, a person who acts for another financially is legally
expected to act as carefully and prudently in the interest of the
beneficiary as a careful prudent person would act in their own
interest. Persons with extra knowledge and skills (e.g. professional
trustees, as in bank departments) can be held to higher standards.
Salespeople in the financial field have other rules I don't know
much about.
If you are a trustee or an executor or otherwise acting for someone
else, you are covered by various state laws which require that you
act according to this "prudent man" standard. This is interpreted
by the courts in the event of a challange by an alternate trustee
or beneficiary, etc. If you stick with a buy-and-hold strategy
using blue chips and high-rated bonds you'll probably be fine even
if you lose a little money, if you buy options and win big for your
beneficiary no-one will care. But if you lose a lot trading safely
(when others don't), or trade actively in higher-risk markets
and lose money you can be held liable (I don't know whether this
is purely civil or includes criminal penalties as well). On the
other hand, I believe you can buy insurance to cover this risk
(ask about "executors' coverage"), though it's expensive.
Like "reasonable doubt", it's a legal phrase that expresses a level
of thought in everyday language. Like "reasonable doubt", it's hard
to quantify or define exactly, but fairly easy to give examples or
ancedotes.
Note: I am not a lawyer nor am I a trustee, etc. The above is
just my opinion and belief. If you need a solid legal
answer, ask a professional!
-John Bishop
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